Bankruptcy
Bankruptcy is a legal process that helps people manage debt they can no longer afford to pay. It can stop wage garnishments and may temporarily delay the foreclosure or repossession of a home. Filing for bankruptcy gives you time to organize your finances and create a plan for repaying or discharging your debts.
Bankruptcy is a legal way to deal with debt when you can’t pay it back.
Federal laws explain your rights in these situations. There are special courts called bankruptcy courts, and they are part of the federal court system in the United States.
Things you should know before filing for bankruptcy
Before you file for bankruptcy, you may want to learn more about the things you must do before you file, when you file, and after you file for bankruptcy.
The U.S. Bankruptcy Court in Arizona offers resources and information to help you represent yourself through the bankruptcy process.
This includes:
- A walk-in self-help center
- Consultation with volunteer attorneys by appointment
- Online information and videos
- A toll-free bankruptcy hotline - (866) 553-0893
You may also want to consult the U.S. Bankruptcy Court’s overview of the bankruptcy process, glossary of bankruptcy terms, fees associated with filing for bankruptcy, and the forms you will need.
Bankruptcy process
The rules for filing for bankruptcy may be different depending on the type of bankruptcy case you file and details about you or your job.
In general, a bankruptcy case involves:
Starting a Case:
You begin by filing something called a bankruptcy petition. This officially starts your case.
Review by Trustee:
A person called a bankruptcy trustee will check your case.
Meeting of Creditors:
There will be a mandatory meeting with the people and businesses you owe money to, and you must attend.
Following Directions:
After the meeting, the trustee will give you instructions that you need to follow.
Discharge of Debts:
If you do everything correctly, the court will discharge, or wipe away, your debts.
Types of bankruptcy cases
The type of bankruptcy you file depends on your situation. The most common types of bankruptcy for individuals with debt are Chapter 7 and Chapter 13.
United States laws define six different types of bankruptcy:
Chapter 7 bankruptcy is available to people or businesses.
They can ask the court to wipe their debts away and give them a fresh financial start. The court may require that the person sell some things they own to pay back money they owe.
Chapter 13 bankruptcy is also called a wage earner’s plan.
This enables people with regular income to develop a plan to repay all or part of their debts. Under Chapter 13, people propose a repayment plan to make installments to creditors over three to five years.
Chapter 11 bankruptcy is when a business gets help from the court to restructure its debts and assets.
In most cases, the company can continue to operate.
Chapter 12 bankruptcy is for “family farmers” or “family fishermen” with “regular annual income.”
It enables financially stressed family farmers and fishermen to propose and carry out a plan to repay all or part of their debts.
Chapter 9 bankruptcy is for municipalities (cities, towns, counties, and school districts.)
It allows municipalities with unmanageable financial burdens to reorganize their debts and create a plan so that they can continue to function.
Chapter 15 bankruptcy laws provide for cooperation between U.S. courts and foreign courts.
This type of bankruptcy is for when foreign bankruptcy proceedings touch upon U.S. financial interests.
Consequences of bankruptcy
If you file for bankruptcy, it may temporarily stop things like lawsuits, wage garnishments, repossessions, and foreclosures. Before you file for bankruptcy, you’ll want to consider the consequences to your credit and finances now and in the future.
The Fair Credit Reporting Act allows your bankruptcy case to show in your credit report for ten years.
A bankruptcy case in your credit report may limit your ability to borrow money or lenders may charge you more for the money you borrow. You have a better chance of getting credit again after bankruptcy if you pay your bills on time and your income is more than enough to cover the debts you owe.
Your options for future debt relief are limited after you file for bankruptcy.
For example, you can’t file for Chapter 7 bankruptcy (where debts are wiped out) if you already got a Chapter 7 discharge in the last eight years and you can’t file for Chapter 13 bankruptcy (where you repay your debts) if you got a Chapter 7 discharge in the last four years or a Chapter 13 discharge in the past two years.
Chapter 7 or Chapter 13
The two main types of bankruptcy for individuals are Chapter 7 and Chapter 13. When you file, you must choose Chapter 7 or Chapter 13. There are many similarities with Chapter 7 and Chapter 13 bankruptcy and important differences to know.
How it works
Liquidation - Requires you to sell property that isn’t exempt to pay off your debts.
Reorganization - Involves a structured payment plan to repay creditors over a set time.
Who can file
Individuals and business entities.
Individuals only.
Income Requirements
Individuals must have a below-median level income or pass a means test. (Learn more about income limits and other requirements.)
Individuals must have a steady income to make regular payments through the repayment plan.
Other Requirements
Must undergo a test where your finances and income for the last 6 months are thoroughly reviewed.
Have not filed a Chapter 7 bankruptcy within the last 8 years, or Chapter 13 within the last 6 years.
Must complete a debt counseling course with an approved counseling agency no more than 180 days before filing.
Have not filed for Chapter 13 bankruptcy for 2 years, or Chapter 7 bankruptcy for 4 years.
Be current on filing your taxes.
Certain limits on unsecured and secured debt amounts.
Must complete a debt counseling course with an approved counseling agency no more than 180 days before filing.
Time to receive a discharge
Usually 3 – 5 months.
Once all payment plans are complete. Usually 3-5 years.
Debts that are not usually discharged by bankruptcy
Tax debts or government fees
Mortgages
Child Support or Spousal Maintenance (alimony)
Tax debts or government fees
Student Loans (unless undue hardship proven)
Auto Loans
Tax debts or government fees
Mortgages
Child Support or Spousal Maintenance (alimony)
Tax debts or government fees
Student Loans (unless undue hardship proven)
Auto Loans
Benefits
Allows you to discharge most of the debt quickly.
Allows you to keep your property and catch up on missed payments, like a mortgage.
This topic can be complicated. You may want to talk to a legal professional for help.
This website shares general legal information. Some content may be simplified or may not reflect recent changes in law. If you need advice for your specific situation, you should talk to a legal professional.
This content was last updated on Oct 1, 2025.